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Dealing With an IRS Collection

IRS, Irs Attorney, Irs Problems

If you ever wondered what happens when you don’t pay your federal tax bill due, don’t. Read this article instead of trying to find out the hard way. The process starts with the IRS taking a few steps to make sure you really understand you have a bill due.

First, the IRS sends you a bill after you have sent in your tax return, showing you owe the federal government money. Most folks send in a check with their return when funds are owed, but the IRS follows up anyway if they didn’t. This notification in the form of a tax invoice is the first step in the tax agency’s process for collecting taxes due. The bill will tell you how much exactly needs to be paid and by what date.

Some folks immediately think they can pay part of the bill received, like a credit card statement, and then wait for another bill. This is not the case. The IRS tax bill needs to be paid in full, and the invoice will say that in writing. At this point in the process you can settle the whole issue by sending the IRS a check made out to the U.S. Treasury or by using a credit card and electronically paying the taxes. The IRS can take credit card payment on its website at www.IRS.gov as well as by phone by calling 888-872-9829, 888-729-1040, or 888-972-9829. For bank debit card charges you need to call 866-472-9829 instead. Note that credit card and debit card payments have a convenience fee attached to them on top of the tax payment.

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If you’re in a financial situation that makes it impossible to pay the entire bill in full, you need to try to pay the bill as much as possible. If you can pay 50 percent, pay it. If 75 percent, then pay it. This reduces your exposure for penalties and interest considerably. If you don’t think it’s a serious issue, considered this: by the time a bill gets to a tax lien, a $50,000 tax bill can reach as much as $250,000 due to penalties and interest compounded. The IRS interest adds on daily, not monthly like a credit card. IRS Topic 202 – Tax Payment Options, covers payment options in detail as well, read it.

When put in the situation of not being able to fully cover your tax bill, you should attempt to come up with the difference from a bank loan or credit card loan. If nothing else, the amount of interest you get charges through these methods will be far less than what you would have to pay the IRS for the same time period.

All of the above said, some folks still can’t pay their tax bill. If the issue is due to financial hardship and can be clearly proven (for example, you suffered a house fire and lost everything as shown on fire department or police records), the IRS can delay the collection process until you can pay. However, this option is entirely up to the tax agency, not you.

Also, don’t be surprised if the IRS files what is known as a Notice of Federal Tax Lien. This action allows the IRS to seize any assets, funds, or payment due to you to settle your tax bill. The IRS will send this document to all your known banks, employers, contracting parties owing you money, and government benefit agencies. You will have no further advance notice; the IRS requires the notified entity to turn over the funds directly to the tax agency and certify nothing else is available to grab.

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You may be put on an installment plan in the meantime by the IRS to collect what it can in payments. Interest and penalties continue to add up on the unpaid balance until you’ve paid the tax bill completely, however. To get approved for an installment plan, you need to submit an application to the IRS. You can find the application on the IRS website via the Internet. You can also send in the application by regular mail by filling out IRS Form 9465 – Installment Agreement Request.

As a final method of trying to manage your tax bill, assuming your installment plan request was denied, you can try to pitch what is called an Offer in Compromise (OIC). The IRS doesn’t have to accept it, but what you are doing is pitching a settlement for an amount you can pay immediately towards the tax bill. If the OIC is accepted by the IRS, then it settles the entire bill, sometimes less than what the original bill was for. However, if accepted, you have to pay the settlement immediately to make it work. More details can be found in IRS Topic 204, Offers in Compromise.

If you completely shirked your tax responsibility or both an installment plan or a proposed compromise have been rejected, then the IRS and frequently does take matters into its own hands. The options include tax liens, tax levies, offsetting a tax refund due to you (using the refund to pay your bill due), and enforcement actions (investigations and trial) which include civil as well as potential criminal penalties.

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You don’t have to wait for the IRS to find you to connect and communicate. A taxpayer can always call the agency directly at 800-829-1040 to find out options on how to settle a bill. Further, the IRS, as ominous as it may seem, has to follow a strict process for collection. This is covered in detail in IRS Publication 1 – Your Rights as a Taxpayer as well as IRS Publication 1660 – Collection Appeal Rights.

Sources:

IRS: Online Payment Agreement (OPA)

IRS Publication 1 – Your Rights as a Taxpayer

IRS Publication 1660 – Collection Appeal Rights

IRS Topic 204, Offers in Compromise

IRS Form 9465 – Installment Agreement Request

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